J.P. Morgan to Pay $153.6 Million to Settle SEC Charges

The SEC said J.P. Morgan Securities will pay $153.6 million to settle charges that the firm misled investors in a mortgage-backed securities transaction “just as the housing market was starting to plummet.”

In shades of the SEC lawsuit last year against Goldman Sachs, the SEC in a news release said J.P. Morgan set up a $1.1 billion collateralized debt obligation without properly telling investors that a hedge fund helped select assets packed into the CDO, and had bet against more than half those assets.

The company neither admitted nor denied the SEC allegations. J.P Morgan agreed to improve how it reviews and approves mortgage-bond deals.

(Reminder: CDOs are complicated financial securities build around pools of mortgages and other loans. The pools were then sold in slices to investors. Some of the slices considered “safe” turned out to be anything but when the home loans inside the CDOs went south.)

The Wall Street Journal previously reported that the SEC was in talks to settle fraud allegations related to the J.P. Morgan mortgage-bond deal, called “Squared CDO 2007-1.” Hedge fund Magnetar Capital played a “significant role” in selecting CDOs for the transaction, and had a $600 million short position, meaning the firm bet on losses in those same CDOs, the SEC says.

J.P. Morgan said it took $900 million in losses in connection with the 2007 mortgage bond deal. The SEC says J.P. Morgan avoided potential substantial losses by pushing a slice of the Squared deal to about 15 institutional investors, including Thrivent Financial for Lutherans and a Kansas company that provides insurance and retirement investments.

Goldman Sachs last year also agreed to settle a similar SEC civil lawsuit for $550 million. The SEC charged Goldman failed to tell investors that one of its 2007 CDO deals, known as Abacus, was put together with the help of hedge-fund investor John Paulson, who was betting against the mortgage market. Goldman also agreed to settle the case without admitting or denying wrongdoing.

Separately, the SEC separately filed charges against Edward S. Steffelin, who was in charge of the team at an investment firm, GSC Capital, that was tasked with putting together the Squared investment. The SEC said Steffelin allowed Magnetar to pick and short assets, and approved marketing materials that didn’t disclose Magnetar’s role. Steffelin was trying to land a job at Magnetar at the time, the SEC says.

Comments (5 of 18)

Constructors should be registered while using builders fee practitioners board. They have to maintain a current building sign up. Before you sign a contract using any kind of builder request to ...pool fill in

7:42 am June 22, 2011

Reply to average joe wrote :

You forgot about how the criminal congresspeople steal the SSAN retirement funds each year instead puting them in investments like is done with their own congreesional retirement.

1:53 am June 22, 2011

SMT wrote :

So in essence, they conned, swindled, and or scammed their way through this deal. Got caught. And no one goes to jail or has to pay anything out of pocket?

If this were me or you, we'd be doing time and have all of our personal assets liquidated.

It's time for a civil war, folks.

9:01 pm June 21, 2011

Thos. Jefferson wrote :

The sleazy SOB's should rot in jail - doing hard labor! It;s no joke, it's a travesty of justice!

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